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Saturday, December 31, 2011

Thank you to all the readers who continue to follow the site. It has been exciting to watch my viewership grow from under 2,000 views my first year writing in 2008 to just under 50,000 views in 2011 (and close to 12,000 in the month of November during the peak of this year's European anxiety). I look forward to another fun year of writing.

I will be releasing my complete 2012 Outlook during the next week. For those that would like to review my 2011 Outlook you can do so by clicking here. I was essentially correct on sovereign debt, housing, and stocks, but was wrong on the municipal bond market in the US. I was in the Meredith Whitney camp that there would be widespread defaults this year. That has not come to pass, yet.

To end the year I will leave you with a piece from the godfather of investor newsletters, Richard Russell, who has been covering the markets for close to 50 years.

“This year's close for gold marks the 11th year for higher year end gold closing. To my knowledge this is the longest bull market of any kind in history in which each year's close was above the previous year. This fabulous bull market will not end with a whisper and a fizzle. I continue to believe that the upside gold crescendo of this bull market lies ahead. We are watching market history.”

“I note the frustration and anger of the anti-gold crowd. To miss 12 years of rising prices is enough to make any investor furious with himself. I would guess that 99 percent of Americans have never participated in the gold bull market. Thus, sour grapes is the sentiment of the gold-haters. Happy to say my subscribers who listened to me in the early years of the gold bull market have enjoyed the riches bestowed upon them by the greatest bull market in history.

Gold pessimism grows. Market Vane's bullish consensus has plunged to a rare 56%, lowest percentage in recent years. Gold had been down six days in a row and is now heavily oversold. This may be the final much needed washout before the eventual blow-off.”

This bull market in gold has required tremendous patience as governments have constantly been active in a game of psychological warfare against the long-term gold holders. This latest correction has tested the nerves of even the staunchest bulls.

Friday, December 30, 2011

The following shows the annual asset returns for 2011. The big winner? 10 year US treasuries at 16.7%, which are currently in the final stage of a bubble mania. Gold finished up for the 11th year in a row at 8.9%.

Movie sales are down 4.2% this year. I think this is a combination of more Americans waiting for movies to come out and watch on their big screens at home for $1 at the red box (I am in this category) and a lower quality of original new ideas for movies being released. The graphic below shows the top 10 movies in 2011 in terms of ticket sales. The top 7 are all sequels. Click for larger graphic:

The precious metals market is in a complete panic right now. Pessimism in the market is unprecedented, nervous investors are dumping their positions, and the weak hands are liquidating everything they can get their hands on.

I have not been this bullish on gold and silver in 18 months. I hate to buy investments when they are rising and while I enjoyed the run up over the past year and a half in my current holdings, I continued to raise cash all the way up, sadly watching prices runaway higher. I recommended the same thing to long time readers of this site, week in and week out, by saying the following:

Hold your current positions and raise new cash for a coming buying opportunity.

As markets soared higher I received emails and phone calls from people upset that they were not buying silver at $27, then $35, then $40 as it ran toward $50.

When the price of silver hit $30 a few weeks ago I made my first investment in the market in close to 2 years. When it fell I bought more. Yesterday it fell and I bought more. Tomorrow, if we are fortunate to have the price go lower I will buy more. If it continues to fall, god willing, I will buy much, much more.

The people that desperately wanted to purchase silver at $40 now email me in panic on whether they should dump everything at $26. Could silver fall to $21? $17? Back to $8 like in 2008? I have no idea. I hope so. It will be years before I sell my silver.

If my goal is to have X number of ounces when we reach the mania stage of our bull market, when the sovereign debt crisis reaches the shores of the United States, then can I not buy more silver ounces at $8 than at $50? Doesn't a lower price help me obtain more?

Some investors want to know if I think prices are going lower, shouldn't they sell today and try and re-buy in the future? My answer is no. I have no idea where prices are going tomorrow. I do know that when prices are lower and sentiment is at extreme lows I like to buy.

I do not know if we will wake up tomorrow to a global central bank intervention like we did 3 weeks ago. I do not know if the Fed will announce QE3 tomorrow, or the ECB will announce QE1, or China will announce a new stimulus program, or Japan will announce another round of QE. I know all these things are coming, but I have no idea which night they will occur while I'm sleeping.

Do not be shaken out of your position by someone on television that makes money selling stocks and bonds. Do not be shaken out of your position by your real estate agent who says that the best store of value would be purchasing a home. Take a moment and think about if anything has changed in the global banking system that would make precious metals a worse investment because they are on sale.

For 18 months I have been saying to hold your positions and raise cash. Now I am saying that it is time to take that cash and begin making purchases.

I am not a financial advisor. Please contact one before making any investment decisions.

I will be writing much more on the two large announcements over the past month (the global swap lines opening for the Fed to supply money to European banks and the new ECB LTRO program). In the meantime, a great interview with a former Fed official Gerald O'Driscoll who says the recent swap lines are a direct bailout from the Federal Reserve to Europe.

Another great video from Michael Maloney discussing where we are in the current gold bull market measured by the total outstanding credit and money supply. In the early 1930's and in the late 1970's gold revalued itself to account for the total money supply. Maloney believes this revaluation is coming again and describes where gold would have to move in order to back the outstanding money and credit.

Tuesday, December 27, 2011

Lots of real estate data to cover this month so it is a good time to review where we stand in the short term. The Case Shiller Index just announced that October prices were down 1.2% month over month. The index is down 3.4% year to date and down 32.1% from the peak in 2006.

Earlier this month we received home price data from other sources:

FNC:down .6% month over month

Radar Logic:down 2% month over month and down 5.4% on the year

Core Logic:down 1.3% month over month and down 3.9% on the year

New home sales surprised to the upside this month rising to an annual rate of 315,000. The majority of the construction is coming from the multi-family sector (apartments). The graph below shows the starts going back to the 1960's and clearly shows that the industry remains in the trough of a depression.

Core Logic provided the important update on shadow inventor through October showing that there are currently 1.6 million homes over 90 days delinquent, in foreclosure, or Real Estate Owned (REO) that are not listed on the market (held on the banks books in the shadows). The following graph shows this enormous mountain that is slowly working its way lower as banks finally begin to slowly put homes for sale.

Years ago when I was writing about the the housing market I felt that before the market had bottomed the stigma from being a renter would be removed and there would be a stigma around being a home owner. The process has taken much longer than I expected and is still not complete, but I came across an article this morning titled "America Becoming a Nation of Renters."

The article states:

With U.S. unemployment at a lofty 8.6 percent, home foreclosures rising and property prices under pressure, more and more Americans have given up the dream of owning, opting instead to rent, a shift that is remaking the face of the U.S. housing industry.

I have said when we reach the point when Americans feel that "they never want to own a home again," a message that is strong within the under 30 group who have only known falling prices since leaving college, it will market the point when it is time to buy.

We are far closer to the bottom of the real estate market than the top. As the last swell of inventory enters the market, interest rates begin to rise, and pessimism toward home ownership reaches a crescendo, prices will make their last major fall downward. Then it will be time to enter the market and get your piece of the American dream.

Sunday, December 25, 2011

Merry Christmas and Happy Holidays to everyone. I am at home this week with my family, which always makes me appreciate the important things in life; my friends, family, and loved ones.

Unfortunately, we are at a point in our current economic depression where things will be getting much worse for our country as a whole before they will be getting better. The people in charge of economic policy and deficit spending will only make a difficult decision after we experience a major collapse, and a major collapse is what is coming.

Difficult times have a benefit in that more people will become closer to their family and friends. My complete 2012 outlook will be released in the next two weeks.

"We should be careful to get out of an experience only the wisdom that is in it and stop there lest we be like the cat that sits down on a hot stove lid. She will never sit down on a hot stove lid again and but she will never sit down on a cold one either."

- Mark Twain

"It's waiting that helps you as an investor, and a lot of people just can't stand to wait."

- Charlie Munger

"Live as if you were to die tomorrow. Learn as if you were to live forever."

- Gandhi

"One of the best rules anybody can learn about investing is to do nothing, absolutely nothing, unless there is something to do. I just wait until there is money lying in the corner, and all I have to do is go over there and pick it up. I wait for a situation that is like the proverbial shooting fish in a barrel."

- Jim Rogers

"Capitalism without financial failure is not capitalism at all, but a kind of socialism for the rich."

- James Grant

"At this juncture, the impact on the broader economy and financial markets of the problems in the subprime market seems likely to be contained."

- Ben Bernanke, March 2007

"Everything that needs to be said has already been said. But since no one was listening, everything must be said again."

- Andre Gide

"When people are getting richer and richer but they're not actually producing anything, it can't end well."

- Louis CK

"In economics things take longer to happen than you think they will, and then they happen faster than you thought they could."

- Rudiger Dornbusch

"I don't write about what I know. I write to find out what I know."

- Patricia Hampl

"Chains of habit are too light to be felt until they are too heavy to be broken."

- Warren Buffett

"Everyone has a plan until they get punched in the mouth."

- Mike Tyson

"Interest on the debt grows without rain."

- Yiddish Proverb

"You can have comfort, or you can have value. You cannot have both."

- Jim Grant

"Investors should remember that excitement and expenses are their enemies. And if they insist on trying to time their participation in equities, they should try to be fearful when others are greedy and greedy only when others are fearful."

- Warren Buffett

"No very deep knowledge of economics is usually needed for grasping the immediate effects of a measure; but the task of economics is to foretell the remoter effects, and so to allow us to avoid such acts as attempt to remedy a present ill by sowing the seeds of a much greater ill for the future."

- Ludwig von Mises

"Men who can both be right and sit tight are uncommon."

- Jesse Livermore

There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.

-Ludwig von Mises

"Most investors think quality, as opposed to price, is the determinant of whether something's risky. But high quality assets can be risky, and low quality assets can be safe. It's just a matter of the price paid for them."

- Howard Marks

"Whenever you find yourself on the side of the majority, it is time to pause and reflect."

-Mark Twain

"None are more hopelessly enslaved than those that falsely believe they are free."

-Goethe

"The longer the markets disobey basic rules of valuation, the bigger the opportunity for good investors to reap the benefits. Value investing works precisely because markets become dysfunctional at times."

-John Coumarianos

Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria. The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell.

-Sir John Templeton

"No very deep knowledge of economics is usually needed for grasping the immediate effects of a measure; but the task of economics is to foretell the remoter effects, and so to allow us to avoid such acts as attempt to remedy a present ill by sowing the seeds of a much greater ill for the future."

- Ludwig von Mises

"People only accept change in necessity and see necessity only in crisis."

-Jean Monnet

Requiring a central bank to print money to increase government's purchasing power invariably ignites a hyperinflationary firestorm. The result through history has been toppled governments and severe threats to societal stability.

- Alan Greenspan

"It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning."

- Henry Ford

"Do you want to sell sugared water for the rest of your life? Or do you want to come with me and change the world?"

-Steve Jobs

"I'd be a bum on the street with a tin cup if the markets were always efficient."

-Warren Buffett

"The market can stay irrational longer than the investor can stay solvent."

- Keynes

"While the government struggles to save one crumbling enterprise at the expense of the crumbling of another, it accelerates the process of juggling debts, switching losses, piling loans on loans, mortgaging the future and the future's future. As things grow worse, the government protects itself not by contracting this process, but by expanding it."

-Ayn Rand, 1974

"The test of a first-rate intelligence is the ability to hold two opposing ideas in mind at the same time and still retain the ability to function."

- F. Scott Fitzgerald

"All our life, so far as it has definite form, is but a mass of habits - practical, emotional, and intellectual - systemically organized for our weal or woe, and bearing us irresistibly toward our destiny, whatever the latter may be."

-William James

"Men it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, and one by one."

-Charles Mackay

The greatest enemy of knowledge is not ignorance, it is the illusion of knowledge.

- Stephen Hawkings

"Give me control of a nations money supply, and I care not who makes it's laws."

- Amschel Rothchild

Illusions commend themselves to us because they save us pain and allow us to enjoy pleasure instead. We must therefore accept it without complaint when they sometimes collide with a bit of reality against which they are dashed to pieces.

- Sigmund Freud

Many of life's failures are people who did not realize how close they were to success when they gave up.